Innovation and Regulation in the Pesticide Industry

Researchers, such as Headley (1968) and Campbell (1976) have shown empirically that chemical pesticides have played a major role in increasing agricultural productivity. However, there is concern that chemical pesticides may contaminate ground and surface water, have harmful effects on wildlife, leave residues on agricultural products, and cause health risks to farm workers (Harper and Zilberman 1989). These potential side effects have prompted strict regulation, Critics of chemical pesticide regulation, such as Green, Hartley, and West (1977), assert that the cost of complying with regulations reduces the incentive to develop the new active ingredients needed for use in herbicides, insecticides, fungicides, and other chemical pesticides. Consistent with this view, Gianessi and Puffer (1992) argue that regulatory costs have encouraged firms to register chemical pesticides only for major crop uses, such as corn, and have deterred firms from registering chemical pesticides for minor crop uses, such as fruits and vegetables. Others (Lichtenberg, Spear, and Zilberman 1993) claim that more stringent regulations may result in chemical pesticides with higher toxicity. Questions of the impact of regulation on registrations, chemical pesticide crop uses, and pesticide toxicity may be closely linked. Greene, Hartley, and West (1977) believe that high regulatory costs reduce the incentive to develop chemical pesticides for minor crop uses and encourage firms to develop chemical pesticides that are effective in controlling many types of pests and in diverse weather conditions. However, these wide-spectrum chemical pesticides are the ones most likely to have more undesirable environmental side effects. Historical evidence suggests a link between health and environmental testing costs and pesticide development time and the number, type, and toxicity of new pesticide introductions. Between 1970 and 1989, as pesticide research expenditures used for health and environmental testing rose from 14% to 47% of total pesticide research spending and chemical pesticide product development time rose from seven to eleven years, the number of chemical pesticides dropped from 46 over the 1972-76 period to 30 over the 1985-89 period. The number of new chemical pesticide registrations for vegetables and other minor crops declined from 62 over the 1972-76 period to 15 for 198589, even though registrations for corn and other major crops remained almost unchanged, and the number of pesticides with chronic toxicity effects declined from 22% of new pesticides over the 1972–76 period to 6% of new pesticides for 198589 (table 1). This paper has two purposes: (1) to examine the impact of Environmental Protection Agency (EPA) regulation on chemical pesticide innovation and (2) to investigate the relationship between regulation and the toxicity of new pesticides.’ The paper